How is energy actually extracted from fission? Every source I can find right now just says something like 'energy/ heat is released by nuclear fission' but I can't find a description of the specific mechanism. 
I know that the energy 'conversion' so to speak is from 'nuclear' [in the mother nucleus] to 'thermal' [in the coolant (water)], but I'm looking for an understanding of what's happening on a fundamental level. 
I know that the daughter nuclei and free neutrons will have kinetic energy. Is this then transferred to the water via atomic collisions? 
Do the gamma rays help to heat the water? If so, how? 
 A: In nuclear reactors the heat is used (if it is used1) to drive some kind of engine. In large land-based power-plants the heat absorbed by water is used to drive steam turbines.2 Most of these reactors have use water as a moderator, so the working parts of the reactor are under water at all times. In graphite moderated reactors the working fluid (i.e. water) runs through the moderator in pipes and is heated by contact with the hot moderators.
At the microscopic level heat occurs when fast fission fragments or gamma rays hit other molecules and set them in motion.
There is also a class of devices called "radiothermal generators". These use the heat more directly to run electrothermal generators. This is even less efficient, but they have no moving parts and are very compact. They are used on spacecraft.

1 Some small reactors are run purely for training or to make use of the neutron flux. Often called "test reactors" they are not used to generate power at all.
2 For safety reasons the water heated by the reactor is actually run through a heat exchanger to heat a different water supply which is used to run the turbine.
A: When an isotope fissions, it releases somewhere between 2-3 fast neutrons, prompt gamma rays, and usually two fission products.  The fission products are radioactive, and some of the fission product decay releases additional energy in the form of beta rays, gamma rays, and neutrinos.
Most of the energy (about 80 percent) is released as kinetic energy of the fission products, which causes the nuclear fuel to heat up.  In most commercial reactors, water flows through the core to remove the heat from the fuel, and the water is used to produce steam for a turbine.
There are several different sources for exactly how much energy is released.  In the book "Nuclear Reactor Theory", by J. R. Lamarsh (1966), the following table is given:
Fission fragments  168 MeV
Fission product decay
  beta rays          8 MeV
  gamma rays         7 MeV
  neutrinos         12 MeV  (this energy cannot be recovered)
prompt gamma rays    7 MeV
Fission neutrons     5 MeV
Total              207 MeV

More up-to-date data can be found in the ENDF/B data, but it is fairly close to the table shown above.
